Lenders throughout the UK have brought competition back into the mortgage market. Now, they’re pricing the short rate environment with fixed-rates under 4%. Today, over 80% of mortgage borrowers are in fixed-rate contracts. This important new climate creates a second chance for borrowers looking to get out ahead on the best terms.
Now it is all the big UK lenders that have returned with these compelling rates to strongly suggest that conditions in the market have brightened. The average rate for a standard five-year fixed mortgage product is now 5.12%. By contrast, the average rate for a two-year fixed mortgage deal is only marginally higher at 5.21%. This narrowing of rates indicates little difference between swap rates, which influence mortgage pricing over both two and five-year periods.
Rachael Hunnisett, director of mortgage distribution at April Mortgages, has seen this shift first-hand. Borrowers are more willing than ever to avoid the risks associated with short-term solutions. She stated, “There is a cohort who just do not want to take that level of risk with their home.”
Closer to home, Nationwide, the UK’s biggest building society, shot to the front of the national remortgaging queue last week by unveiling market-leading rates. This move reflects a broader trend within the financial sector, as lenders adapt to changing economic conditions influenced by global events, including US tariff policies. It comes against a backdrop of market observers broadly anticipating base rate cuts later this year. As such, hope is growing for a turn in mortgage rates.
In spite of this optimism, brokers are warning that more cuts are not a certainty. David Hollingworth of broker L&C added that deals under 4% are now becoming part and parcel of the mortgage ranges from big lenders. He noted that these rates present a very attractive opportunity for borrowers.
As many as 800,000 fixed-rate mortgages with interest rates at or below 3% are expected to expire annually until the end of 2027. Given all that, we heard from Aaron Strutt of Trinity Financial that there has been a noticeable increase in interest in new deals. He stressed that borrowers are just coming to terms with their finances, well into the months before their current contracts run out. Rather than waiting for rates to fall and taking out two-year fixed rates, he pitched that longer-term fixes could help improve their payment security.
Strutt additionally pointed to his firm’s recent offering of 100% home loans, which he said could be up to seven instances a borrower’s earnings. That’s much higher than most shorter-term loans available on the market today.
Though sub-4% deals were momentarily present in February, their recent re-emergence has surprised plenty of market-watchers. The continued uncertainty over interest rates has made the current landscape a tricky one for borrowers to navigate.